Smart Reasons to Save, Use and Invest Money

Does Money Have Value?

What do you think?  Does Money Have Value?

Sometimes I open my wallet and look at the paper money there within!  While the paper is a lovely shade of green with some very special effects in the print, I have to wonder if it’s really worth it!

I often wonder what would happen if aliens from another planet came down and saw us working away for a few, relatively small, rectangular pieces of paper?  Do you think that they would conclude that we aren’t the smartest animal on earth…  Perhaps they would give up on us and try to communicate with the dolphins instead?

Money has had different forms throughout the ages ranging from shells to such things as ancient metal knives (in china) and even stones!

The thing about paper money is that it has no intrinsic value!  The only way it has value is if a group or society believes that it has value, and are willing to trade other things (such a labor) for the belief of the value in that paper money.

At one time in the past, many countries backed up their paper currency with precious metals.  For example, in the United States, at one time in the not to long ago past, each dollar had a certain amount of gold locked away in a safe that was reserved to represent the money.

So at one time, paper money did have value, but the gold standard has been given up (in 1971), and now the money floats.  Now paper has nothing backing it up other than an a believe that it has value (and it does).

Even though I’m not currently buying gold, if something were to happen to my country, my paper money would become worthless (see the confederate currency for a great example).  However if I did own gold, even if something were to happen to make my countriy’s currency practically worthless, gold would still have value!

So tell me, what do you think, does money have value?  Do you think it would be worth it to diversify your investment portfolio by owning some precious metals?  Maybe 10%, or more?

-MR

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36 Responses to Does Money Have Value?

  1. Money has “value” only as far as its users agree that it has. There are certain scenarios where gold might not be of much use as a currency. In prison, cartons of cigarettes are the recognized currency of choice. We have a certain amount of precious metals in our portfolio, but not a large amount.

  2. Gold has no value. It is soft and malleable, it renders no useful ions on corrosion, it does not conduct current very well. To a certain extent, it is useful as a heat-conductor in corrosive environments especially.

    Your house has no value other than what you were willing to pay for it. It has no value other than what people are willing to buy it from you for.

    Because so many people agree on the value of the dollar, it is stable, and because other nations opinion of the value of the dollar reflects their opinion of your country, the value fluctuates as the US governments behaviour fluctuates.
    (compare timeline of USD value and U.S. decisions – it’s geeky and funny)

    And finally, there is not very much gold availible in the world. Are you of the opinion that there is a finite amount of wealth?

    • First gold does have value, not only in a cosmetic sense, but at one time (and I think this still hold true today) gold is used in computers and monitors because of it’s special properties.

      You house keeps you the elements off of you and protects you in other ways, so it to provides a value.

      A dollar is just paper, and if the goverment really messes up, it can be totally worthless.

      Basically the message of my post is to make sure that you include other forms of assets in your possession. Money can be the primary, but at least do asset diversification to some degree.

  3. You are describing the definition of a “fiat.”

    Money has value so long as you think the US government is going to last and back it up. If the US government collapses, I figure the value of paper or electronic money is going to be only one of many worries.

    Like William Bendsen says, gold is also a fiat– its only use other than as a store for value is in making jewelry and a few industrial purposes. Those uses do not account for its entire value. And, of course, you can’t eat it. If the world economic situation collapses, the value of gold could plunge dramatically. Or, if everybody keeps believing it is worth something it could increase. But, if the world goes back to a precious metal system, as Willam Bendsen notes, there is not enough precious metal to handle the amount needed for smooth transactions. The world economy would contract enormously to what it was back when it was on the Gold and Silver standards. That would suck.

    No, I don’t think doomsday scenarios for someone living in the US justify putting precious metals in the portfolio. If the US government collapses then chances are you couldn’t have enough metals actually in your home (which has its own dangers) to make a difference and any off-site storage of such money is going to collapse as well in whatever chaos has destroyed the US.

    • I think you are taking it to a different extreme that what I intended.

      If you want to buy an assets in a world collape, then buy guns and bullets… 😉

      I’m just saying gold and assets other than paper currency has a place in my/our portfolio. And just because one person has gold and other has no gold doesn’t mean that gold has no value to those that don’t have the gold…

      Here’s the kicker, I don’t have any gold or other precious metals (or another other alternative assets) in my financial portfolio yet. But I should have if I was smarter and richer.

      As some of the developing countries continue to get richer, gold will become even more scarce because in some cultures gold is highly valued (India for example).

      Asset valuation (like many things in live) requires a holistic approach.

      Anything that is scarce, can appreciate to a high value if it’s in demand…

      • NPR had a piece recently about all the new gold mines that are opening up because of the relative price. Apparently there are lots of deposits still out there that just weren’t worth mining, but now that the price is up they are.

        • Don’t tell the aliens! They’ll come and use us as miners workers again! lol There was a show on the history channel and that was one of the theories why aliens came here and supposedly helped up build complex stone structures.

  4. “each dollar had a certain amount of gold locked away in a safe that was reserved to represent the money” – that was in my opinion a great idea!

    Now that it is no longer practiced, the feds are printing money like there is no tomorrow!

    The feds are able to do this since the dollar is still respected in the world. But that is slowly changing. If this continues, gold might once again gain its place.

    Very interesting post MR!

    • I can’t hurt to have a little bit of gold in your portfolio. I know a few friends that actually have gold in a safe. And while it’s a small percentage of their portfolio (less that 10%), it’s not a bad idea. Once I get to a level of wealth were I can afford a bigger safe (lol), I too will buy some gold someday 🙂

    • If we went back to a gold standard, the economy would contract. There are not enough precious metals and we cannot transport precious metals fast enough to keep up with the size and speed of the world economy.

      Peter Temin has an interesting early book on this issue called Lessons from the Great Depression.

      • Oh, I’m not saying for the government to back to the gold standard. I’m just saying as an individual it’s good to have asset class diversification in your portfolio.

        With rest to the Great Depression, Bernake disputes that the gold standard caused the issues, and I agree with him.

        A lot of things were done back then that we wouldn’t do today (hopefully).

  5. My brother feared our economy and bought quite a bit of gold a few years ago and he is looking like a genius. However, as others have commented, gold has value because we assign it value.

    I too have laughed at how paper money ‘holds’ value. It is actually amazing how durable it is. I wonder how long a dollar bill lasts out there in the world?

    • I heard that paper money is continually being replace via the banking system. They act as a filter, taking the old money shipping it to the government to be disposed of in whichever way they do that (It use to be burned).

      That said, money does burn easy so it does have a certain level of value (lol).

      I don’t think I would want to own more that 10% of my assets in precious metals or other currency forms.

  6. Gold is used all the time in all kinds of electronics, so I’d say it does have value.

    I have a commodity mutual fund that includes some precious metals but I bought it like 10 years ago. It hasn’t done anything significant until recently.

    I think farmland would hold more value to me than gold if all hell broke loose. At least I could live and grow my food on it.

    • Yep, future inflation (hopefully not hyper-inflation), is a huge concern and really one of the major reasons for this post.

      The US government chastises the banks for basically taking on too much debt, but have they looked in the mirror lately?

  7. The value we, as a society, place on money changes from day to day if you watch the dollar value go up and down. So, I would think that diversifying your portfolio and investing in some precious metals might be a good investment in the long run. However, the value of metals fluctuates as well.

    If our society were to collapse, however, I think that owning a small chunk of land and having the ability to grow food would be much more valuable than any piece of metal or scrap of paper. You can’t eat paper or metal. 😉

    • I agree, I wish I knew more about living off of the land! Gold does have value though, more so that paper… I would like to have 10% of my investment portfolio invested in a precious metal some day.

  8. if money (notes or digital) become worthless, then we will have bigger problems to worry about (complete universal lifestyle re engineering). that said, i bought a good amount of gold some years back and it has done very well. i plan on continuing to ride the waive.

    here is an interesting tidbit:

    during the last recession, gold was trading at 6 times the S&P. the math today would put gold at a much much higher level than it already is in.

    that said, is gold still overvalued as many experts say?

    i am riding the bandwagon. who else is in?

    • I would like to to have some precious metals in my portfolio, but especially gold. As the other developing countries grow their middle class, gold has the potential to keep going up.

  9. Of course money has value! The more relevant question is, does it have enough value? Gas prices go up because of the value of the US $. Can we buy as much as last year?

  10. This is a very philosophical question. It was interesting when you mentioned what if something happened to the U.S.? You suggest that the U.S. dollar would have no value. While that seems probable, I don’t think that this fact alone serves as enough justification for gold though. For example, in a time of tremendous chaos, are people really that interested in gold? Perhaps, the gold would have value in other places but not where you would prefer to live.

    • I think gold is more stable then the dollar. The dollar is just paper, and if our government starts printing more money like crazy, flooding the market with dollars, we many find that a loaf of bread suddenly cost $100 or even $1000 dollars.

      But gold is of limited supply, since nobody can really flood the market with gold it will be more stable and hold it’s value.

      This post was really my discreet way of trying to get people to think about 2 things:
      1.) inflation that is on the horizon
      2.) asset class diversification

      • Money Reasons,
        My point is regardless of whether you are talking about metal or paper, the value is only based on what others are willing to pay. During a time of chaos, water and bread may have more value than a dollar and gold, regardless of the supply.

        • True, very true.

          It’s funny how water seems free (no value) to us, but really it’s has the most value. If all other valuation systems and city systems fall apart, clean water will be very, very valuable!

  11. If we ever got to a point where the dollar became worthless I always wondered what would actually happen…a retail investor owns a piece of paper that says they own a share of a fund who owns a piece of paper that says they might get a piece metal….

    where is the actual commodity?

    • I think this too, especially when the piece of metal is overseas! That’s why I wouldn’t mind actually owning a bit of gold or other precious metals in a safe at home. Granted, not a lot, just a little….